DBS Group Holdings Ltd CEO Piyush Gupta said that investors in Southeast Asia’s largest lender should be cautious about uncertainties stemming from US Federal Reserve interest rate hikes and slowing Chinese growth.
That tone followed the release of strong profit growth for the fourth quarter, wrapping up a year that he described as the bank’s best financial performance in the past decade.
Gupta’s concern is a scenario in which central banks tighten policy too quickly and choke off economic recoveries, an outcome that he said DBS has not factored into its outlook.
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However, that is unlikely for now, even if there are seven or eight Fed hikes, he said.
“If the central banks find that inflation is too sticky and therefore rates get back to three, three-and-a-half, 4 percent above, then that’s another story. That’s not our base case,” Gupta said yesterday.
In China, there remains uncertainty over the economy’s trajectory and consumption, with its strategy to tolerate very little spread of the Omicron variant of SARS-CoV-2, Gupta said.
The caution follows a 37 percent jump in fourth-quarter profit, boosted by its highest loan growth in seven years and increased fee income. Net income climbed to S$1.39 billion (US$1.03 billion) in the three months ending Dec. 31, beating the S$1.36 billion average estimate.
“It is quite clear, from a financial strategy and business standpoint, this is probably the best performance we’ve had in certainly the entire of the last decade,” Gupta said.
Loan growth increased by 9 percent, which helped mitigate the impact of interest rate cuts, he said.
Fee income rose 15 percent, while wealth management and transaction banking also reached new highs. Investment banking benefited from record fixed income and a recovery in equity market activities, while card spending surpassed levels set before the COVID-19 pandemic.
The earnings put a cap on a year that has seen DBS turn around its profit margin from one year ago, when the global pandemic hit commercial banks. The lender has also managed to secure high-profile deals, including the purchase of Citigroup Inc’s consumer banking assets in Taiwan.
The growth in loans book and fee income “speak to a recovering economic environment, as well as our broadly diversified franchise,” Gupta said. “We look forward to the coming year with a prudently managed balance sheet that is poised to benefit from rising interest rates.”
Business momentum is also expected to remain healthy amid moderation in the economic recovery, with the bank expecting mid-single digit loan growth or better, as well as double-digit fee income growth, Gupta said.
DBS’ board is proposing a fourth-quarter dividend of S$0.36 per share, an increase of three cents from the previous payout. Barring unforeseen circumstances, the annualized dividend should rise by 9 percent to S$1.44 per share.
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